Module 2 Flashcards
What does MLR Stand For?
Medical Loss Ratio
What is Objective Risk?
The relative variation in actual claims experience from what was expected.
Objective risk declines with what?
It declines with the number of covered lives (the law of large numbers)
T or F:
Expected Claims are the probability of loss times the magnitude of loss.
True
T or F:
Gross Premium = Prue Premium/(1-Loading %)
True
T or F:
Pure premium or actuarial fair premium is based on expected claims.
True
T or F:
Manual rating is based on a pooled approach.
False
T or F:
Subjective Risk is found when we examine an individual.
True
T or F:
Objective risk declines as the number of covered lives decreases.
False
T or F:
Specific stop-loss insurance covers risk in excess of a certain pooling point.
False
T or F:
Geography and smoking status are factors considered in group underwriting.
True
T or F:
A reliable risk pool objective is to have a small dispersion of possible outcomes, which can be obtained in larger groups.
True
T or F:
Adverse selection can occur when an insurance carrier seeks just the healthy populations by “cherry picking” who they will cover.
True
Pure Premium is best described as:
A. Expected claims (probability of loss x magnitude of loss)
B. Gross Premium
C. What the insurer applies to cover its objective risk, profit, and costs of running a plan
D. What is found when we examine an individual’s degree of risk aversion.
E. How insurance carriers use a group’s experience as well as its overall book of business.
A - (Page 31-32)
All of the following are true about ratings and stop-loss coverage, EXCEPT:
A. Community rating is a pooled approach.
B. Manual rating comes from actual geographic, age, and health-based rate manuals. Aspects of it are still used today.
C. Aggregate stop-loss coverage limits the exposure of a firm for a single claim/individual.
D. The future prospective experience rating is based on the prior/current claims of a group.
E. Retrospective experience rating is where a group pays a lower payment up front and agrees to make a retro payment at the end of the year as needed.
C - Aggregate stop-loss is coverage over a certain composite pooling point for the exposed group. Specific stop-loss coverage limits exposure of the firm for a single claim or individual. (Page 37-38).
This is based on expected claims (the probability of loss times the magnitude of loss).
Pure Premium
Gross Premium = Pure premium / (1-Loading Percentage)
Gross Premium
What the insurer applies to cover its objective risk and the costs of running the plan while still making some profits.
Loading Percentage
The relative variation between actual claims experienced and claims that were expected.
Objective Risk
This is found by examining an individual’s degree of risk aversion.
Subjective Risk
Conditions that are not prevented by vaccines, cured by medication, or just disappear on their own. (i.e., some cardiovascular diseases).
Chronic condition examples
To have a small dispersion of possible outcomes and a large number of lives enrolled.
Reliable risk pool objective
This type of experience rating looks at past claims for setting a premium on that basis.
Prospective experience rating
The insurer bears the risk and has a loss if claims experience minus investment earnings exceeds the premium.
Who bears the main risk in an insurance arrangement
The insurance carrier may use this to reflect both the group’s experience as well as the carrier’s overall book of business.
Blended premium
The group pays a lower upfront premium and agrees to make a retroactive payment at the end of the year if needed.
Retrospective experience insurance agreement
The larger the group, the more predictable past claims exposure is for future claims.
Credible Group
This type of insurance limits exposure of the firm to total claims.
Aggregate stop-loss
This type of insurance limits exposure for a single claim on an individual.
Specific Stop-loss
This type of rating uses pooled data that is blended with data based on the contract mix, contract size, and charging ratios.
Adjusted community rating
The proportion of premium revenues spent on clinical services and quality improvement.
Medical Loss Ratio (MLR)
The proportion of premium revenues spent on clinical services and quality improvement.
Response: I use the exact verbiage as what The Center for Consumer Information & Insurance Oversight (CCIIO) has on their website. Please visit https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health- Insurance-Market-Reforms/Medical-Loss-Ratio for more information. (Text, p. 32)
Can you provide a simple explanation of the differences between pure fully insured plans and self- funded plans?
Response: Insured plans are like the bill I pay for my new Disney Plus streaming service or health club membership. No matter how frequently I use it with my family, including with my new grandchild, or the duration of use (or in the analogy of the health club, the number of times I go), I pay the same amount. I have the same guaranteed cost each month of a given year, making planning predictable- including the likelihood of a rate increase each year. Self-funding is more like my gas and electric bills – I pay as I go, paying for exactly what I use. I can use more efficient lightbulbs, turn off unnecessary lighting, use more efficient appliances, or even keep consumption about the same and install solar panels to reduce my costs (which I did 5 years ago, and it paid off quite well for me). Given that the costs are internalized, there is a greater incentive to try to be efficient with my usage. I can take various measures to keep more money in my wallet. (Text, p. 38)
What are the Affordable Care Act requirements that may have an impact on an employer participating in a health plan and, as such, have an impact on health insurance underwriting?
Since 2016, an employer with 50 or more full-time equivalent (FTE) employees is required by the ACA to offer an affordable health plan to at least 95% of their full-time (30+ hours a week) employees. (Note that the law states employees and does not mention dependents.) Employers that do not offer an affordable plan may be required to make a tax payment if at least one of their full-time employees receives a health insurance premium tax credit. An affordable plan is defined as an employee-only coverage plan which costs 9.12% (which is the 2023 limit, down from the 2022 limit of 9.61%) or less of an employee’s household income. Small businesses (fewer than 50 employees) generally are exempt from having to provide healthcare coverage. However, if the employer decides to provide coverage, it must comply with the ACA’s requirements for small group plans. Small businesses (with fewer than 50 employees) may even be able to cover their employees through the Small Business Health Options Program (SHOP). Businesses with fewer than 25 full-time equivalent (FTE) employees may even be eligible for a Small Business Health Care Tax Credit (if the average wages of the group of fewer than 25 employees are $56,000 or less), which offers them the chance to offer high-quality coverage and reduce costs by pooling risk and streamlining administration. (Text, pp. 44-46)
